This is a pretty nasty cocktail that we’ve got going on right now. For starters, there’s rising inflation along with rising interest rates to compensate for the rising inflation. Not to mention the fact that some (if not many) asset prices are at levels that we’ve not seen, well, ever! Add to the mix the fact that the Fed continues to inflate its ~$9 trillion balance sheet (no need being specific here since we’re talking trillions!) while treading on eggshells when it comes to matters of raising rates. Think this isn’t enough for markets to digest? Well guess what, Russia is on the verge of invading Ukraine. It could literally happen at any moment. It’s heating up out there and (European) markets already look like a bloodbath. Before the actual one has happened.
As an investor, as much as all this is stomach-churning and sick-inducing, along with whatever else you’re feeling right now, don’t let it stop you from sticking to your (long term, I hope!) strategy. Markets were around long before wars (during the 18th century) and they’ll be around long after them. I promise you that. And while Russia’s may-or-may-not invasion might spook you, markets do have a habit of not doing too badly during times of crisis. Take the invasion of Kuwait in August of 1990. The S&P 500 rose by 3% between then and the allied victory that followed in February 1991. On the other hand, though, the S&P 500 fell by 1% between the start of Gulf War numero deux and the fall of Baghdad in April 2003 (less than a month later). And while these numbers might not be all that scary, wars certainly are and they’re a whole lot easier to get into than out of!
But luckily there are a number of safe spots where can you take shelter during this never-ending market misery and mess. So what are they?
Seek Refuge In The Stock Market
For starters, you can turn to the stock market. It’s survived two world wars, not to mention countless other (non-global) ones. And it’s still here to tell the tale. Read here how you can step right into stocks. Let’s look at our first point of shelter: REITS. These are real estate companies that are listed on the stock market and instead of you managing tenants, and all hassle (and occasional joy?) that comes along with that, you pay managers to do all the work for you. In return, you get dividends (aka the rent). REITs are defensive and they tend to pay out 90% of their profits (rents) in dividends to its shareholders. So, despite market turmoil, you can still expect your income. Which doesn’t sound too shabby at all!
Moving on to other hiding places (beyond bricks and mortar), you can invest in consumer staples. Staples, so not snazzy, but boy are these things sturdy. Or at least they should be! Just look around your home and see how many products come from these giants. See where your toothpaste is from, your cleaning products and so on. No matter the weather, we’ll all be needing this stuff. Inflation or no inflation. Not to mention food! This is as staple as it gets. And the giants that supply them to us are feeding the nation. Come rain or shine, we need them. Sure, when tech took off and all these exciting growth stories dominated investors’ money, consumer staples kinda lost their appetite. But the tide has changed, and a lot has happened since then.
Then there’s healthcare. No matter what’s going in the world (war or no war), we all need looking after in one way or another! And for that, healthcare companies are a trusted part of any portfolio and are likely to hold up during times of volatility, which is precisely what we’ve got going on at the minute. Healthcare companies add another defensive dimension and some areas will also give you some growth exposure (like biotech) though they’ll be riskier and it might not be what you want right now! Infrastructure is also worth looking into for its super-defensive and dividend-friendly properties. It’s your roads, bridges, transportation, sewage, water, electric systems, and loads more. It’s the basis of everything and companies (as well as ETFs/funds) that operate in these areas could be worth a look at. Granted, these aren’t exactly your growth hotspots either so you aren’t going to have that same capital appreciation as you would if you’d have invested in say, tech(!), but they do a pretty good job at protecting your capital, while giving you some income along the way. After all, money now is better than maybe-monies. And this year’s shown us that a portfolio needs a bit of everything. Not just the fun growth stories. Read here what yo can do to diversify your portfolio to reduce your overall risk.
This one is not for everyone, but private (unlisted) companies could be a way for you to grow your capital outside all of the market turbulence. Since these companies are private, they aren’t exposed to the dramatic ups and downs that comes with the territory of being a public company. Out in the open, for all to see. They can get on and do their thing, in private. And while you have zero option of selling out until these companies either go public or get bought out which means they’re hugely illiquid, this can actually work to your advantage during times like these!
Since the selling is when we very often get it wrong (like selling on emotion and selling when markets tumble), this illiquidity can act as a real solution (and barrier) to this all-too common problem. I recently invested into a start-up for these exact reasons and now I need not worry or have to think about its share price until they have another fundraising round! Though it’s probably (at least) several years till I get my money back but that’s a price I’m willing to pay, now anyway.
Gold: Physical Or Digital
The last (but not least!) and probably most famous place of refuge is gold. Gold, the scarce yellow metal, has long been considered a safe haven asset. A place where investors run to when all hell breaks loose. Sound familiar? Now, while gold isn’t going to be doing any magic tricks to your portfolio (like its digital, estranged cousin) it can at least prevent you from some whopping losses or smooth them out. It’s pretty sturdy and should generally hold up during times of turbulence. Though funnily enough, when covid broke out in March 2020, gold did not hold up too well. Though in the past few months (when sentiment started to turn slightly sour), gold has been holding itself. And that’s precisely why you need to be diversified! To never rely on asset and one asset only. You’ve gotta own a whole bunch of ‘em. Read here about the bricks that did better than gold ones! But in ’09 (bitcoin’s birth), a new ‘gold’ came to town. This one is digital, innately scarce in nature. There are only 21 million coins. No more, no less. And once they’ve all been mined, that’s it. And it’s this digital scarcity that appeals to many investors, especially now. So dig around and see what you find. Let your curiosity run wild.
No matter where you choose to seek refuge, I hope you (and your money) will feel slightly safer! But don’t fear paralyse you. Markets move way quicker than anyone can imagine and just before the worst is over, markets might have already priced in the good news that’s to come. And while you most definitely (always) need a handful of defensive areas in your portfolio for times exactly like these, don’t get too defensive. You also need growth and a whole host of other things. Never let fear get the better of you. And don’t hide for too long!
See you on the other side.
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.